accounting profit: a firm's profit as it
would be measured by the firm's accountants: total revenue minus total
explicit costs (costs for which there is an explicit payment in cash or
kind or debt). See: economic profit, opportunity costs.allocative efficiency:
a state of affairs in which resources are allocated to producing goods
and goods are allocated to consumers in such a way that it is impossible
to make any consumer better off without making some other consumer worse
off. Allocative efficiency in distributing goods in a market economy
requires that P = MC. Allocative efficiency in production requires
that MPx / Px = MPy / Py
for all inputs X and Y.basic economic questions: a set of questions
that that summarize the job of an economic system. The number of
questions varies from one economist to another, but the following three
are commonly cited:(1) what to produce and how many of them?
(2) how to produce the goods? (3) for whom are the goods
produced (who will get the goods)?capital: in economics, a manufactured
durable resource which is used to produce other goods but does not become
part of the goods. Physical capital includes tangible machinery,
buildings, trucks, computers (if used in business), retail shelves, etc.
Homes and inventories are also included as physical capital. Human
capital refers to acquired human skills. Like physical capital,
resources are required to create human capital through education, and formal
or informal training. See: investment.capitation:
a payment system by which an organization (such as a health maintenance
organization) receives a fixed payment per member or per patient (i.e.,
per capita)community hospital:corporate hospital: the term usually refers
to a for-profit, investor-owned hospital. Since by far, the majority
of all hospitals--community, teaching, and for-profit, alike--are incorporated,
the term can be misleading.cross-price elasticity of demand:
the elasticity of demand for one good (X) with respect to the price of
a different good (Y). Exy = %DQDx
/ %DPy. The cross-price elasticity
of demand for good X shows the responsiveness of the consumers of good
X to changes in the price of good Y. If the X and Y are substitutes,
then Exy > 0. Example: a brand-name drug and a generic
drug. If the X and Y are complements, then Exy < 0.
Examples: use of a surgery room and use of a recovery room; ER physicians
and X ray technicians. Many goods are neither substitutes nor complements.diagnostic rate group:
(DRG) a category of patients having the same initial diagnosis. The
idea was that health care provider's reimbursement would be patient based
on the patient's DRG. Any cost savings on the treatment would be
profit for the provider, but cost overruns would have to be paid by the
provider. See: capitation, PPS.DRG: see:
diagnostic rate groupeconomic profit: the difference between
a firm's total revenue and its total costs--including the opportunity costs
of the owners' resources. See: accounting profit.efficiency: see allocative efficiency,
productive efficiency.elasticity: a way of expressing the effect
of a change in one variable on another. The percentage change in
the dependent variable divided by the percentage change of the independent
variable. E = %DY / %DX.
(The character D should be the upper case Greek
delta, which stands for "difference" or "change in".) Most often used in
connection with demand and supply curves. See: elasticity of demand,
own-price elasticity of demand, cross-price elasticity of demand, income
elasticity of demand, elasticity of supply.elasticity of demand: see: own-price elasticity
of demand.elasticity of supply:equilibrium:FFS:fee-for-service:for-profit hospital:general hospital:health maintenance organization:HMO: see: health maintenance organization.incidence: proportion of a population
newly diagnosed with a disease or trait during a time period. See:
prevalence.income elasticity of demand: the elasticity
of demand for a good (or service) with respect to households' incomes.
EM = %DQDx
/ %DM., where QDx
is the quantity demanded of the good X and M is the households' incomes.
Goods or services for which EM is positive are called normal
goods, while goods for which EM is negative are called inferior
goods.industry:inputs:investment: in economics, an increase
in capital. Construction of new buildings, machinery, etc.
Investment is a flow; it must be measured over a period of time.
See: capital.

loading charge: the portion of an insurance
premium that is in excess of the pure premium (q.v.). The loading
charge covers such things as administrative expenses, advertising, and
profits for the insurer.margin: in general terms, the last additional
amount of something; the outer edgemarginal benefit: the additional benefit
that results from one additional unit of something. MBx
= DTBx/DX
where TBx is the total benefit from having X of something.marginal cost:marginal product:marginal revenue: the additional sales
revenue that results from selling one additional unit of the firm's product.
MR = DTR/DQ where
TR is the total revenue from selling Q units of the product. TR =
P•Q. The marginal revenue will only equal the price of the product
when the price of the product is constant. If the firm has to cut
the price in order to sell more units, then the marginal revenue will be
less than the price.marginal utility: the additional utility
(satisfaction) that a consumer gets from having one additional unit of
some good (or service). MUx = DTU/DX
where TU is the total utility that the consumer gets while consuming X
units of the good, everything else being the same.normative economics: using value judgements
with economics. Saying that something is good, that it should be
done, or that X is better than Y are normative statements. See: positive
economics.opportunity cost: the value of the best
alternative forgone when a different alternative is chosen. The value
may be measured in terms of money, satisfaction, or other goods.
See: economic profit, production-possibilities frontier.own-price elasticity of demand:
also called simply the elasticity of demand. The elasticity
of the quantity demanded of a good with respect to the price of that good.
Ex = %DQDx
/ %DPx. The elasticity of demand
shows consumers' responsiveness to a price change. The more responsive
they are to the price change, the larger is (the absolute value of) the
elasticity. I.e., an elasticity of demand equal to -3.2 shows more
responsiveness than an elasticity of -0.6.positive economics: using economics is
a purely descriptive way. Saying that the unemployment rate is 5.4%
or that an increase in nurse's wages would raise the cost of health care
are positive economic statements.PPO: see:
preferred provider organization.PPS: see: prospective payment system.preferred provider organization:prevalence: proportion of a population
who have a disease or trait. See: incidence.production function:production-possibilities frontier:
also called a production-possibilities curve. A two-dimensional graph
which shows the most of one good that can be produced while producing a
given quantity of another good. The two axes measure the quantities
of the each good being produced. Assumes given availability of resources,
given level of technology, and a given time period in which to measure
the production of the two goods.productive efficiency: allocative efficiency
applied to production.profit: a firm's total revenue minus its
total cost. Must be measured over a period of time. See: economic
profit, accounting profit, normal profit.prospective payment system: the outpatient
equivalent of diagnostic rate groups (DRGs). Medicare will reimburse
the eligible clinic a fixed amount based on the patient's initial diagnosis.pure premium: the portion of an insurance
premium that is needed to cover the cost of the expected loss on an actuarial
basis.risk averse: describes a person who prefers
to avoid risks. Such a person may take risks but only if the rewards
for taking the risks are great enough. Risk averse people invest
(cautiously) in the stock market, but they do not gamble. Antonym:
risk seeking.teaching hospital:technical efficiency: getting the most
output from a given set of inputs. See also productive efficiency.utility: economists' term for satisfaction.
Economists presume that utility can be measured, or at least that consumers
act as if their satisfaction could be measured.voluntary hospital: